As bankruptcy can have long-lasting negative effects on your credit, it should be one of your last options if you find yourself overwhelmed by debt. However, if you follow correct bankruptcy procedure, you can obtain a discharge of your debt and continue your life without the burden of debt payments. Bankruptcies vary in detail from case to case, but all follow federal bankruptcy procedure and time lines.
Attend Credit Counseling
Before you can even file a bankruptcy petition, you must obtain credit counseling from a court-approved provider. This requirement was part of the bankruptcy law overhaul in 2005. The credit counseling course can help you analyze your financial situation and determine if bankruptcy is a good course of action for you, or if debt settlement or negotiation is a better option. You must take this course no more than 180 days before you file for bankruptcy, and you must attach the certificate of completion to your bankruptcy petition.
Complete Bankruptcy Petition
The heart of your bankruptcy case is your bankruptcy petition, an exhaustive list of forms that request information on everything from your assets and liabilities to your income and expenses. In order to complete these forms, you will need extensive details about your financial situation, including the names and addresses of all your creditors, your current and projected income and expenses and a list of all of your property. If you do not provide all of the information that the court requests, your bankruptcy case will most likely be dismissed. In order to successfully complete the bankruptcy petition, the United States Courts strongly suggest that you hire an attorney.
Appear at a Hearing
Most debtors are happy to learn that they do not generally have to appear before a bankruptcy judge at all during a bankruptcy case. However, you will have to make at least one appearance at a meeting formally called the Section 341 meeting. Generally, this is a short meeting in which you appear before a bankruptcy trustee and go over certain parts of your petition. If you have a simple case with few assets, the meeting is often over in just a few minutes. Creditors are invited to attend the meeting and ask questions, but they will rarely make an appearance.
Take Another Class
The provisions of the Bankruptcy Abuse Prevention and Customer Protection Act of 2005, or BAPCPA, require you to take an additional class after your Section 341 meeting. This course is different from the pre-petition credit counseling course and focuses, instead, on financial management. You must submit a certificate of completion to the court, or your bankruptcy discharge may be delayed or denied.
Life After Discharge
If you successfully obtain a bankruptcy discharge, you no longer have to pay any of your old outstanding debt. However, the fact that you filed for bankruptcy will remain on your credit report for up to 10 years and may make getting a loan in the future difficult or impossible. At the very least, you should expect to pay a higher interest rate on any loans you obtain after bankruptcy. You can help speed up your credit repair by acting responsibly with your finances after your discharge.
- U.S. Trustee Program: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)
- U.S. Trustee Program: Credit Counseling and Debtor Education Information
- United States Courts: Bankruptcy Forms
- United States Courts: Filing for Bankruptcy Without an Attorney
- NOLO: A Chapter 7 Bankruptcy Overview
- U.S. Trustee Program: Chapter 3-5: Section 341 Meeting